News Feature
| May 20, 2014

Will Utilities Pay Price For Fracking?

Water utilities can expect a major financial hit as the fracking industry grows if the controversial process contaminates the water supply, according to one ratings agency.

Fitch Ratings said in a recent report that if water is contaminated by fracking chemicals, the agency "would expect a serious blow to a utility's revenues, with losses concurrent with other growing direct and indirect costs. This would lead to debt service coverage reductions, liquidity strains and possibly the need for additional leverage."

That's because the burden for cleansing water of fracking chemicals would fall on water utilities, rather than oil and gas companies.

"As water utilities are ultimately responsible for complying with EPA regulations for monitoring, treating and delivering water that is safe for public consumption, they would bear much of the financial, operational and regulatory burden of safeguarding water that could potentially be contaminated by fracking operations," the report said.

To date, the federal government has not done much to regulate the practice of fracking. In fact, EPA regulations enable oil and gas companies to avoid disclosure of the chemicals in fracking water by claiming them as "trade secrets," the Fitch report said. "Even if the chemicals used for fracking are disclosed, they may not be on the EPA's list of regulated contaminants," the report said.

A new government report showed a gap in federal oversight when it comes to fracking. The report "highlights substantial gaps in oversight by the agency that manages oil and gas development on federal and Indian lands," the Associated Press reported.

"Investigators said weak control by the Interior Department's Bureau of Land Management resulted from policies based on outdated science and from incomplete monitoring data," the AP report said.

Despite only limited attempts at federal action, many states are stepping in to oversee the practice of fracking.

Michigan, for instance, is currently debating rules designed to rein in oil and gas companies and protect the water supply from potential contamination. The state is exerting its oversight powers over natural gas fracking by changing existing rules for oil and gas companies so they apply to the latest drilling methods.

Regulators at the Michigan Department of Environmental Quality "say they've had a successful record regulating the practice of hydraulic fracturing in the state for more than five decades, but new practices by the oil and gas industry are leading to the rule changes," Michigan Radio reported.

Hal Fitch, head of Michigan's Office of Oil, Gas, and Minerals, said water contamination is a concern, especially since other states have struggled with that problem as a result of fracking.

"Even though we’ve got a real good history of it... there’s still that concern about whether it could happen, so we’re requiring companies to go out and sample wells within the vicinity for specific parameters so we’ve got that baseline," Fitch said to Michigan Radio. "And then if there is any question about water quality, later on you know we’ll have something to compare it to."

Texas lawmakers are gathering data on the dangers of fracking, holding meetings on whether the fracking causes earthquakes. The legislature's Seismic Activity Subcommittee is investigating the issue, inviting input from local officials and university geologists.

"Hundreds of minor earthquakes have occurred in Northern Texas near the sites of oil and gas production and lawmakers want to know if fracking is causing it or a fault line," KXAN reported.